Summary of doctoral thesis in economics improving the current corporate income tax in vietnam

In this context, the writer chose “Improving the current corporate income tax in Vietnam” as the thesis topic in order to find a number of solutions with scientific grounds and practic

MINISTRY OF EDUCATION

AND TRAINING

MINISTRY OF FINANCE

ACADEMY OF FINANCE

LE THI MINH PHUONG

IMPROVING THE CURRENT CORPORATE INCOME

The thesis was completed at the Academy of Finance

Scientific advisors: 1 Assoc.Prof VUONG THU HIEN

2 Assoc.Prof HOANG VAN BANG

Examiner 1:

Examiner 2:

Examiner 3:

The thesis is to be presented at the thesis council at academy level

held at the Academy of Finance

At hour day month year 2019

The thesis is available at the National Library of Vietnam and the library of the Academy of Finance

PREFACE

1 Urgency of the thesis topic

Corporate income tax (CIT) is a very important type of tax in the tax system

of a country It does not only help generate large revenue for the state budget but

it also serves as a very effective tool for the government in regulating the macro economy and adjusting the behavior of enterprises, production and business organizations in the economy A well-organized and well-managed CIT has significant impact on the economy’s development

In this context, the writer chose “Improving the current corporate income

tax in Vietnam” as the thesis topic in order to find a number of solutions with

scientific grounds and practical meaning These solutions focus on improving the effectiveness of CIT policy and administration in the coming time in a timely manner to bring into play the role of tax policies in mobilizing tax revenue, regulating and promoting Vietnam’s socio-economic development With such significance, it is necessary and urgent to study the thesis topic

2 Research objective

Overall objective: Recommendting a number of solutions to improve CIT

policy and administration with scientific grounds and in line with the reality of CIT in Vietnam to improve the effectiveness of CIT policy and administration, make sure that CIT mobilize revenue for the state budget and help regulate and promote Vietnam’s socio-economic development during 2020 -2025 with vision

to 2030

Specific objectives:

Firstly, clarifying theoretical issues about CIT policy and administration as

the basis for evaluating the reality of CIT in Vietnam nowadays and looking for solutions to improve CIT in Vietnam during 2020 - 2025 with vision to 2030

Secondly, studying theoretical basis and building models to analyze and

evaluate the impact of tax rate and changes of CIT policy on economic development

Thirdly, synthesizing, analyzing, commenting and evaluating the reality of

CIT in Vietnam during 2000 - 2018; clarifying achievements, shortcomings and reasons for such shortcomings

Fourthly, giving orientations and proposing important solutions to improve

CIT in Vietnam in both aspects: CIT policy and CIT administration

- Scope of CIT administration subjects: Tax administration bodies at levels

and tax administration of tax payers that are enterprises operating under the Enterprise Law excluding: (i) taxpayers as individual household businesses, non-business organizations and armed forces not operating under the Enterprise Law; (ii) tax administration activities of customs authorities

- Scope of content: The thesis inherits results from related scientific studies

and focuses on clarifying the theoretical framework of CIT policy and administration The thesis studies the contents of CIT policy and administration

- Scope of space and time: CIT in Vietnam during 2000 -2018, specifically

CIT policy and administration in Vietnam during three periods: (i) 2000 - 2006; (ii) 2007 - 2011; and (iii) 2012 -2016 with forecast 2020 -2025 and vision to

2030 Secondary data are mainly collected from General Statistics Office (GSO), the Ministry of Planning and Investment (MPI), and the Ministry of Finance (MOF) Primary data are synthesized by the writer from report of tax agencies such as Ha Noi Tax Department and General Department of Taxation

5 Research data and methodologies

5.1 Research data

Data in the thesis include macro data of Vietnamese economy, micro data

of annual enterprise survey from the General Statistics Office and Ministry of Planning and Investment

 Data used for evaluating the impact of CIT: macro approach

The writer uses quarterly data from 2000 to 2018 with data sources mainly from the GSO and MPI

 Data used for analyzing and evaluating the impact of CIT: micro

approach

In this part, the writer uses the enterprise survey data set of the GSO and MPI from 2000 to 2018 Such data set has been used by the GSO for annual survey since 2001

In the data set, the writer eliminates some variables due to statistical error, such as: capital, number of employees, business age with negative sign, incomplete answers or the enterprises has not declared the tax code

 Variable description

Variable

TAXOTH Other tax, calculated by subtracting corporate income

taxes from total tax collection

In which,

- GDP: Gross Domestic Product, collected from GSO with 2010 as the base year For the chain to end in first order logarithmic difference, the writer removes the chain’s seasonality by using Holt-Winters' seasonal method (unit: billion dong)

- Customer price index (CPI): collected from the GSO with 2010 as the base year (unit: percentage)

- Variable TAXCOP and TAXOTH are collected from MOF and converted

to real value by dividing to GDP’s deflation

- GC: collected from GSO using 2010 as the base year (unit: billion)

- FDI collected from GSO using 2010 as the base yea (unit: billion)

For descriptive statistics of variables, see Annex 2

5.2 Research methodologies

Methods applied in the thesis include:

Statistical comparison method; synthesis analysis method;

Quantitative method: used for modeling the impact of CIT on economic entities

Soft wares used for data analysis in the thesis include: Eview 10 and Stata 14

6 Scientific and practical significance of the thesis topic

* Scientific significance:

Firstly, the thesis systemizes and clarifies basic theories of CIT policy and

administration, namely concepts, characteristics, principles, methods of establishing CIT policy and administration, and influencing factors of CIT policy and administration These important issues serve as the basis for evaluating and improving CIT policy and administration in Vietnam

Secondly, the thesis studies and summarizes main orientations in improving

CIT in countries in the world to draw lessons for Vietnam The thesis focuses on important conclusions in terms of clarifying, simplifying and creating transparency in deductible expenses when identifying taxable income; cutting down on a number of expenses such as depreciation, interest ; adjusting common CIT tax rate; narrowing fields and industries eligible for preferential tax rates and focusing on spearhead industries and difficult areas; and finding

effective solutions to prevent transfer pricing and tax losses

Thirdly, the thesis applies the theoretical basis and builds a model to

evaluate the impact of CIT on revenue, labor, productivity, profit of enterprises; assess the impact of CIT on CIT tax revenue and total tax revenue by applying quantitative methods to approach the research issue in two aspects: macro approach (by applying the studies of Mansouri, Fossu & Magnus, and Sakyi) and micro approach (by applying the two-factor production function model of Varian and Fuss & McFaden and Cobb–Douglas production function model)

Fourthly; the thesis provides a relatively in-depth and comprehensive

evaluation of CIT policy and administration in Vietnam during 2000 - 2018; the thesis also clarifies positive impacts of this tax on the economy Epecially, the thesis points out shortcomings and reasons for shortcomings in specific contents

of CIT policy and administration in Vietnam

Fifthly, the thesis proposes important solutions regarding CIT policy and

administration

* Practical significance:

Firstly, thesis serves as a good reference material in teaching and studying policy and administration of CIT as well as basic theories of the model for evaluating the impacts of tax rate and changes of CIT policy Also, authorized state administration agencies can refer to the thesis’ explanations and proposals

in building and implementing tax reform policies in the coming time

Secondly, the thesis proposes five groups of solutions to improve CIT policy and three groups of solutions to improve CIT administration These solutions focus on important issues of CIT, shortcomings and reasons for shortcomings of corporate income tax in Vietnam Some solutions are explained comprehensively and have both theoretical and practical grounds; they are new recommendations such as: revising regulation of deductible expenses; revising and adding regulations on preferential income tax, improving supervision and inspection of CIT…

7 Structure of the thesis

In addition to the preface and conclusion, the thesis is comprised of four chapters:

Chapter 1: Overview of studies on corporate income tax

Chapter 2: Theoretical basis of corporate income tax

Chapter 3: Reality of corporate income tax in Vietnam

Chapter 4: Some solutions to improve corporate income tax in Vietnam

CHAPTER 1: OVERVIEW OF STUDIES ON CORPORATE

INCOME TAX

1.1 Local researches:

During these times, there have been many domestic works on tax policies and CIT policy in the form of dissertations, theses, scientific research works or scientific articles published in specialized journals There are 10 doctoral theses,

03 scientific research topics related to tax policy and CIT policy

In recent years, there has not been any scientific work at ministry level or doctoral thesis that directly studies CIT administration in Vietnam There have been a number of scientific works by scientists, managers, graduate and postgraduate students and graduate students related to this issue Besides the achieved results, even though these scientific works still have contents related to CIT administration or CIT policy, such contents have not been mentioned or analyzed in detail Therefore, on the basis of inheriting results of previous studies

on CIT policy and administration (with 07 doctoral thesis studies and 02 scientific research topics as representative studies), the writer continues to develop, supplement, update and have new research directions in this thesis

In summary, up to now, there have been many doctoral thesis about tax administration in general and CIT administration in Vietnam in particular according to different perspectives but there has been no study about CIT in Vietnam similar to this thesis topic

1.2 International researches

There are four international studies on CIT policy and four studies on CIT

administration

1.3 Assessment of research results

These works were carried out at specific stages of economic, cultural, political and institutional environments There is no uniformity in the environment and historical circumstances in different countries, in different historical periods In addition, there exist differences in political, cultural, economic and educational backgrounds; therefore, according to the writer, it is necessary to study CIT in a specific country and in a specific period to help improve CIT policy and administration in accordance with the characteristics of each country in each period Theoretical issues about CIT need to be developed and added to match with the reality Therefore, it is necessary to continue studying and proposing specific solutions with more practical results

1.4 Research gap

Firstly, studies in other countries are not applicable to Vietnam due to

different socio-economic conditions Secondly, previous studies were mainly

about CIT policy or administration only; frequent changes in reality requires

policy and administration to be adjusted accordingly Thirdly, there has been no

comprehensive study on CIT policy and administration or impact assessment by econometric model to have more scientific and practical arguments for proposing solutions to improve CIT in Vietnam in the new context

CHAPTER 2:

THEORETICAL BASIS OF CORPORATE INCOME TAX

2.1 Corporate income tax

2.1.1 Concept and characteristics of CIT

Based on the dialectical argument for the existence of CIT, it is possible to

consider the concept as CIT as follows: “Corporate income tax is a tax

calculated on taxable income of enterprises in the tax period”

2.1.2 Role of corporate income tax

Theoretically, CIT is one of the most important type of taxes in the tax system; it performs the roles of the tax system in general, namely: (1) regulating income and ensuring social equality; (2) being a significant revenue source of the state budget; (3) encouraging and promoting production and business, encouraging investment in certain fields and localities in certain periods

2.2 Corporate income tax policies

2.2.1 The concept of tax policies and corporate income tax policies

“Policy” is the term commonly used in documents and media; however it

is very difficult term to define in a specific and clear way

From the analysis of the concepts of policies, public policies and tax policies mentioned previously, it is possible to introduce the concept of CIT

policy as follows: “Corporate income tax policy is a set of interrelated decisions

issued by the government, including goals and solutions to regulate a portion of organizations’ income in the society, used by the government to achieve certain goals”

Thus, studying tax policy means studying goals that the tax policy aims at, the economic content of each tax and other necessary tools for the tax policy to

to achieve its goals

2.2.2 Principles and methods of creating corporate income tax policy

2.2.2.1 Principle of creating corporate income tax policy

Even though the scope of coverage, subjects of application, tax rates or CIT preferences are different in countries, the following basic principles are strictly

applied in creating CIT policy: taxing based on the principle of permanent

establishment, taxing based on income from which expenses for creating income

is deducted; determining tax year

2.2.2.2 Method of creating corporate income tax policy

Theoretically, there exist three models for creating CIT policy: taxing on

each source of income generation; taxing on total income; mixed tax

2.2.3 Content of corporate income tax policy

2.2.3.1 Taxpayer

Taxpayers of CIT are organizations with business, production and service activities and taxable income, including: Enterprises established and operating under regulations of Enterprise Law, Investment Law, the Law on Credit Institutions, Insurance Business Law, Securities Law, Petroleum Law, Commercial Law and the provisions of other legal documents in the forms: Joint stock companies, limited liability companies, partnerships, private enterprises, the parties in a business cooperation contract, the parties in petroleum product sharing contract, petroleum joint venture enterprises and joint operating companies

2.2.3.2 Grounds for calculating tax

Tax is calculated based on taxable income and tax rate

2.2.3.3 Method of calculating tax

CIT payable = (Assessable income - Amount transferred to science and

technology fund (if any) x CIT tax rate

2.3 Corporate income tax administration

2.3.1 The concept of corporate income tax administration

CIT administration is a specialized administration field; therefore, to approach the concept of CIT administration, it is necessary to approach the concept of administration beforehand

This thesis agrees to the viewpoint that “Corporate income tax

administration is the deliberate impact of state authorities on the process of calculating and collecting corporate income tax in order to generate revenue for the state budget and achieve the government’s goals”

Within the scope and content of this thesis topic, the thesis focuses on CIT administration in a narrow sense, only covering the activities of tax authorities in implementing administration contents in order to carry out legal policies on CIT

2.3.2 Characteristics of corporate income tax administration

Coming from characteristics of CIT, CIT administration has its own distinctive characteristics: the basis of CIT administration is law on CIT, tax administration and other related legal regulations; CIT administration is mainly done mainly by administrative methods and in combination with other

administration methods; CIT administration is a strictly technical and professional activity

2.3.3 Objectives of corporate income tax administration

The objectives of CIT administration is only are only parts of and somewhat narrower than the general goal of tax administration, but they are also among the common goals that tax administration must achieve

CIT administration aims to achieve the following objectives: strengthening the concentration, adequate and timely mobilization of revenues for the state budget on the basis of constantly nurturing and developing revenue sources; strengthening control, redistribution of income and rmacro-economic regulation

of the economy and society

Thus, CIT administration will contribute to ensuring the efficiency, clarity and flexibility to limit loss of state budget revenue Through that, both mobilizing resources and contributing to preventing corruption and wastefulness can be achieved

2.3.4 Principles of corporate income tax administration

Firstly, abiding to the law; Secondly, ensuring effectiveness; Thirdly, being

public and transparent; Fourthly, abiding to and conform with international

standards and practices

2.3.5 Contents of corporate income tax administration

Within the thesis’s scope, the writer focuses on studying the implementation

of tax administration functions: disseminating and supporting taxpaers, disseminating CIT law; managing CIT declaration and payment; managing tax debt and enforce CIT debt payment

2.4 Influencing factor of corporate income tax

2.4.1 Influencing factors of corporate income tax policy

Firstly, international commitments and practices; Secondly, the goverment’s

spending need; Thirdly, domestic economic development trends and

socio-economic characteristics of each country

2.4.2 Influencing factors of corporate income tax administration

2.4.2.1 Subjective factor

Firstly, data and information sources of enterprises; Secondly, compliance

with CIT laws of taxpayers; Thirdly, IT application level, facilities of tax authorities; Fourthly, the factor of tax authorities: tax administration apparatus

organization; building the human resources; tax administration mechanism

includes: mechanism of tax administration and tax notification and administration mechanism of self-declaration - self-payment of taxes

2.4.2.2 Objective factors

Firstly, the system of legal documents; Secondly, co-operation of related

agencies; Thirdly, influencing factor from enterprises

2.5 Trends in corporate income tax policy and administration reforms

in countries and lessons for Vietnam

2.5.1 About corporate income tax policy

Firstly, reform CIT policy in accordance with the context of international

economic integration and find effective solutions to increase the proportion of

CIT revenues Secondly, CIT reform aims to emphasize the goal of economic

neutrality and increase revenue rather than the goal of income redistribution and

ensure the progressive of CIT policy Thirdly, simplify the structure of tax rates and reduce CIT rates Fourthly, ensure the harmony between CIT common tax

rate, making it not different from the highest tax rate of personal income tax

Fifthly, apply high tax incentives to some priority areas

2.5.2 About corporate income tax administration

2.5.2.1 Paying attention to dissemination and support to taxpayers

Analyzing experiences of countries like Indonesia and Philippines to draw experience lesson for Vietnam

2.5.2.1 Reform of administration mechanism of tax declaration and payment Stepping up the electronic transaction mechanism, specifically: In the

electronic tax declaration, payment and refund, a new system is in place to replace traditional paper transactions; it allows taxpayers to make tax declaration

and payment transactions electronically via the internet

2.5.2.2 Stepping up tax supervision and inspection

Experience of OECD countries: Firstly, organizing supervision and

apparatus according to risk administration mechanism; Secondly, planning tax supervision and inspection according to risk administration mechanism; Thirdly, tools to support supervision and inspection

2.5.2.3 Strengthen tax debt administration and enforcement

Regarding tax debt administration and tax enforcement: Flexible forms of tax inspection depend on compliance acts such as reviewing tax history, compliance history, business history of enterprises when conducting the inspection The Australian Taxation Office also creates favorable conditions for

businesses to voluntarily declare to reduce the amount of tax fines before the inspection is carried out

The measures to collect debt are based on two criteria: tax debt level and compliance level to tax obligations

2.5.3 Lessons for Vietnam

2.5.3.1 Corporate income tax policy

Firstly, about the scope of application; Secondly, about the basis of tax

calculation; Thirdly, about CIT rate; Fourthly, about CIT incentives; Fifthly,

about international transfer pricing

2.5.3.2 CIT administration

Based on studying experiences of some OECD countries and some other countries on CIT administration contents, the thesis points out contents that can

be applied to gradually improve the quality of application of risk administration

in CIT administration activities in Vietnam in the near future

2.6 Assessment of corporate income tax’s impact

2.6.1 Theoretical basis of assessing corporate income tax’s impact

The objectives of this content are to point out the theoretical basis of CIT impact channels and build a model to assess CIT's impact on economic and corporate growth through macro and micro approaches With the macro approach, it is seen that economic growth depends on factors such as CIT, government spending, FDI and CPI With the micro approach, the impact of CIT

on the output of enterprises such as revenue and labor productivity and a number

of other factors can be seen Thereby, CIT policy needs to be adjusted appropriately for enterprises to promote production and business, and increase CIT revenues for the state budget To implement policies effectively and fairly,

it is necessary to have practical solutions to improve the efficiency of CIT administration